If you are a businessman or entrepreneur, it is important to keep in mind how the accounting records start and work, as this will help you avoid conflicts during the process. Do you want to know more? We invite you to continue reading.
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What is the accounting cycle?
The accounting cycle is a process that is carried out to complete the accounting tasks of a company. This process provides a clear guide for the registration, analysis and final reports of the financial activities of a company, it can be carried out by an accounting service.
It should be noted that the accounting process is carried out comprehensively through a full reporting period, therefore, it is necessary to stay organized throughout the process since this can be a key element that will help you maintain overall efficiency.
It is important to mention that the accounting cycle periods will vary according to the reporting needs. Most companies seek to analyze their performance on a monthly basis, although some may focus more on quarterly or annual results. In any case, the specialists of the accounting services in Bogotá will have knowledge of the financial situation of the company day by day. In general, determining the amount of time for each accounting cycle is important because it sets specific opening and closing dates. Once an accounting cycle is closed, a new one begins, restarting the process again.
Understanding the accounting process
The accounting process begins with the individual recording of each company’s transactions and ends with a comprehensive report of its activities. Companies generally count on the help of an accounting service firm that makes the reports exhaustively taking into account all the registered activities.
Remember that depending on the accounting service in Colombia that your company has, the process can be automated. Bookkeeping generally involves some technical and computer support, which will require specialists to intervene throughout the accounting process. Likewise, when this is carried out by an accounting service firm in Bogotá, the accounting cycle will generally need to be modified to adjust to the business model and procedures of each company. This process consists of three separate types of transactions. Which are:
- Beginning of period processing
You need to verify that all transactions that have been set to auto reversal in prior periods have been reversed. Doing so, ensures that transactions are not recorded twice in the current period. These transactions are generally marked as reverse entries in the accounting software, so the reversal should be automatic. However, accounting service specialists generally examine accounts at the beginning of the period to verify reversals. If a reversal indicator was not set, an entry must be reversed manually, using a new journal.
- Individual transactions
The steps necessary to create individual transactions in the accounting process are:
- Identify the transaction: First, it is necessary to determine what type of transaction it is. Examples include purchasing goods from suppliers, selling products to customers, paying employees, and recording customers cash receipts.
- Prepare the document: A business document must often be prepared or recognized to start the transaction, such as an invoice to a customer or an invoice from a supplier.
- Identify accounts: Accounting services in Bogotá must record each business transaction in a GL in the accounting database, such as income, expenses, assets, liabilities or equity GL. You must identify which accounts will be used to record the transaction.
- Record the transaction: Refers to entering the transaction in the ERP. This is done with a journal entry or a standard online transaction form. In the latter case, the transaction forms record the information in a default set of accounts.
- End of period processing
The remaining steps in the accounting process are used to aggregate all the information created in the previous steps and present it in the format of the financial statements. The steps are:
- Prepare trial balance: Trial balance is a list of ending balances of each GL. The total of all debits in the trial balance must equal the total of all credits; If there was an error in the entry of the original transactions, it should be investigated and corrected.
- Adjust trial balance: The trial balance may need to be adjusted, either to correct errors, to create allocations of various types, or to accumulate income or expenses over the period.
- Prepare the adjusted trial balance: This is the original trial balance, plus all subsequent adjustments.
- Prepare financial statements: Accounting services firms in Colombia can create the financial statements from the adjusted trial balance. The assets, liabilities and equity items build the balance sheet, while the income expense items build the income statement.
- Period end: This involves transferring the balances of the income and expense GLs to the retained earnings GL, making them zero and ready to receive transactions for the next accounting period.
- Prepare a post-closing trial balance: This version of the trial balance must have zero balances for all income and expense accounts.
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As we have seen, the ERP for your business consists of several types of records, which are tailored to your needs and requirements, so knowing the processes will help you make the best decision when hiring the accompaniment of an accounting service firm.